Restrictions costing economy $4b a week

Josh Frydenberg will kickstart the push to reopen the economy today by warning Australia's economy will lose $4 billion a week if restrictions stay in place.

Phillip Coorey Political editor May 4, 2020 – Australian Financial Review

Treasurer Josh Frydenberg will kickstart the push to reopen the economy today warning it will lose $4 billion for every week the coronavirus restrictions stay in place, and that it is already on track to shrink by 10 per cent, or $50 billion, in the three months to the end of June.

In a major speech aimed at getting people back to work, Mr Frydenberg will say the harsh economic restrictions imposed to contain the coronavirus have killed jobs, productivity and consumption.

"We must get people back into jobs and back into work,'' Mr Frydenberg will tell the National Press Club.

The $4 billion hit to economic activity for each extra week the restrictions remain in place "is equivalent to what around 4 million Australians on the median wage would earn in a week''.

The 10 per cent hit to GDP in the June quarter, which accords with Reserve Bank of Australia estimates, would have been more than double at 24 per cent, or $120 billion, had Australia fully locked down its economy like some nations in Europe.

"This would have seen enormous stress on our financial system as a result of increased balance sheet impairments, widespread firm closures, higher unemployment and household debt,'' Mr Frydenberg will say.

"This was the cliff we were standing on."

National cabinet meetings

Mr Frydenberg will unveil the Treasury numbers ahead of national cabinet meetings on Tuesday and Friday at which federal and state leaders will discuss a broader lifting of restrictions while guarding against a second wave of coronavirus.

New Zealand Prime Minister Jacinda Ardern will participate in Tuesday's national cabinet meeting to discuss plans to create what she called "a trans-Tasman bubble".

Australia and NZ, both having been very successful in containing the coronavirus thus far, are considering opening their borders to each other to help restart their economies.

"There are significant advantages to New Zealand in terms of a trans- Tasman bubble, not only domestic tourism but equally we have a flow of people travelling between both countries, for business purposes, trade and so on,'' Ms Adern said.

She cautioned that any such move would not be rushed so as not to jeopardise the progress made in containing the virus.

"Don't expect this to happen in a couple of weeks,'' she said.

In his speech, Mr Frydenberg will also stress the need not to go backwards in terms of virus control but with fewer than 1000 active cases across the country, he will note it is time to start putting more emphasis on the economy.

"We are by no means out of this crisis and we must be realistic that even with the best medical minds focused on finding a vaccine, it remains elusive,'' he will say.

"Nevertheless as we build to the recovery phase, we must also turn our minds to the changes that will be needed to further drive economic growth and employment."

Budget impact

Next week he will release a statement detailing the impact in the budget so far of the catastrophe. In June, he will release a series of forward looking estimates on the economic impact of the virus and in October, the budget will be devoted to driving business investment to boost employment and productivity and drive growth.

Mr Frydenberg will say today the Coalition will not deviate from its core principles of low taxes and rewarding effort and risk taking "whilst ensuring a safety net which is underpinned by a sense of decency and fairness".

He will also dismiss any prospect of protectionism for the economy after the crisis.

"Unleashing the power of dynamic, innovative, and open markets must be central to the recovery, with the private sector leading job creation, not government,'' he will say.

"There is a risk that protectionist sentiment re-emerges on the other side of the crisis, and for that we must be vigilant.

"While we must always safeguard our national interest, we must also recognise the great benefits that have accrued to Australia as a trading nation."

Phasing in of land tax

The states are also being prevailed upon to do their share of lifting the economy. Writing in today's The Australian Financial Review, NSW Treasurer Dominic Perrottet again makes the case for replacing stamp duties with a land tax on all properties.

Even if it requires a short-term hit to revenue as stamp duty is abolished and a land tax phased in.

"While we will never lose sight of the need for a strong budget and restrained spending, now is not the time to concentrate solely on the figure at the bottom line of a spreadsheet,'' he writes.

"Rather, it is the time to find ways to take the handbrake off our economy, and reforming stamp duty is near the top of that list – a rare issue where it seems most people are in furious agreement.

"We don’t have all the answers, but we are committed to finding a better and fairer way which lowers the tax burden on people and creates more freedom and choice."

Also writing in today's Financial Review, Industry Super Australia’s chief economist, Stephen Anthony, forecasts net debt will hit the current ceiling of $850 billion, or 27 per cent of GDP, by 2023.

Mr Anthony projects that without reform, the federal government could have deficits for a decade or more.

Most states except Victoria have started lifting restrictions, with South Australia, Western Australia and the Northern Territory well ahead. On Monday, the Queensland government announced school would restart next week with years 11 and 12, as well as preschoolers, and everyone else would return on May 25.

Restrictions to be eased that will be looked at on Friday by the national cabinet include those around community and professional sport, social gatherings, restaurants, cafes and bars, and domestic travel.

Original article here